Please solve the following problems:

1. You own a portfolio consisting of the stocks below:

Stock or Security	Percentage of Portfolio	Beta	Expected Return
1	20%	1.00	12%
2	30%	0.85	8%
3	15%	1.20	12%
4	25%	0.60	7%
5	10%	1.60	16%

The risk-free rate is 3%. Also, the expected return on the market portfolio is 11%.

a. Calculate the expected return of your (Hint: The expected return of a portfolio equals the weighted average of the individual stocks expected returns, where the weights are the percentage invested in each stock.)

b. Calculate the portfolio

2. Assume you have the following

Stock	Stock Weight	Beta
A	38%	1.50
B	15%	1.44
C	27%	1.15
D	20%	1.20

3. What is the portfolios beta?

a. Given the holding-period returns shown here, compute the average returns and the standard deviations for the ABC Corporation and for the market.

Month	ABC Corp.	Market
1	6%	4%
2	3%	2%
3	-1%	1%
4	-3%	-2%
5	5%	2%
6	0%	2%

b. If ABCs beta is 1.54, and the risk-free rate is 4%, what would be an appropriate required return for an investor owning ABC Corp.? (Note: Because the returns of ABC Corporation are based on monthly data, you will need to annualize the returns to make them compatible with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by )

c. How does ABCs historical average return compare with the return you believe to be appropriate, given the firms systematic risk?

4. What is meant by the investors required rate of return? How do you measure the riskiness of an asset? How should the proposed measurement of risk be interpreted?
5. What are an unsystematic risk (company-unique or diversifiable risk) and systematic risk (market or non- diversifiable risk)?